COMMERCIAL REAL ESTATE

COMMERCIAL REAL ESTATE; A Highly Designed Design Complex Gets a New Life

By TERRY PRISTIN

Published: June 30, 2004

WEST HOLLYWOOD, Calif.—
From the moment it opened in 1975, Cesar Pelli's massive and daring Pacific Design Center, with its almost startlingly blue glass exterior, became an instant icon, looming over the surrounding small houses and shops and helping to give this neighborhood, which was incorporated as a city in 1984, a distinct identity.

But for much of its history, the so-called blue whale -- 135 feet high, 245 feet wide and 530 feet long, with 750,000 square feet of showroom space for furniture and fabrics -- has also been viewed as a gorgeous fortress, off limits to all but the rarefied world of high-end interior designers and their well-heeled clients.

A sister building of brilliant green glass, also designed by Mr. Pelli, was completed in 1988, but it had trouble attracting tenants, never becoming more than half full. And in the 1990's, as a design district began springing up in the area surrounding the design center, even the blue whale itself seemed precariously close to turning into a white elephant. Both buildings, however, have recently been revived.

In 1999, Charles Steven Cohen, president and chief executive of the Cohen Brothers Realty Corporation, a New York real estate company, together with Cheslock-Bakker Associates, a private investment firm in Stamford, Conn., bought the Pacific Design Center for about $157 million from the mortgage holder, the pension fund TIAA-CREF, after it was given up by the previous owners.

Mr. Cohen is an office landlord who has created a niche for himself as the owner and operator of three furniture and fabric wholesale marts for the design trade; the other two are the Decoration and Design Building on Third Avenue and 58th Street in Manhattan, which is known as the D&D Building, and the Decorative Center of Houston.

He said he had poured $30 million into the Pacific Design Center to enliven the interiors and transform the complex into a cultural destination as well as a popular setting for large charity and celebrity events.

By adding some 80 windows to the 450,000-square-foot green structure -- in consultation with Mr. Pelli -- he has successfully lured new office tenants to that building.

''Unquestionably, I liked the form better when it was solid green,'' Mr. Pelli said, ''but now there is a sense of liveliness and inhabitation. The worst thing you want is an empty building.''

And now, with the blessing of West Hollywood officials, Mr. Cohen, who became the complex's sole owner last year, is making plans to build a third Pelli-designed building on the site eventually-- this time in red.

In one of the bigger recent deals in Los Angeles, seven marketing and advertising companies operating under the umbrella of the Interpublic Group of Companies, including Weber Shandwick Worldwide/Rogers & Cowan, one of the world's largest public relations companies, have leased 145,500 square feet of space in Pacific Green Offices, as the newer building is called.

Mr. Cohen aggressively sought the new tenants, charging them an annual rent of only $24 a square foot and giving them ''significant dollars'' to build their offices, said Scott J. Panzer, a managing principal at Newmark & Company Real Estate, who led the brokerage team. Average rents in the tiny 1.7-million-square-foot West Hollywood office market were about $28 in the past quarter, according to Newmark's data.

With the Interpublic deal, Mr. Cohen said, the building will be 95 percent occupied. Three of the nine floors continue to house showroom tenants. Mr. Cohen said this recasting of the building, which began in 1998, when Dailey & Associates Advertising moved in, was necessary because there was only a ''finite universe'' of exclusive furniture and fabric showrooms. ''The developers misjudged the depth of the showroom marketplace,'' he said.

For a real estate executive who seeks to create more value in the properties he acquires, merchandise marts like the blue whale pose unusual challenges. ''How do you reposition something that is not an office, and not a retail store?'' he asked. ''Is it a hybrid, or a little bit of both?''

By the time Mr. Cohen bought the complex, he said, the blue building was struggling because manufacturers of office furniture were no longer interested in maintaining wholesale showrooms.

But the design center was also facing new competition, as the surrounding neighborhood began to evolve into a design district. ''Famous designers,'' said Paul Arevalo, the West Hollywood city manager, ''were opening on Melrose and Beverly. Looking at the tax revenues, you saw the shift in the early to mid-90's.'' Consumer habits were also changing. Some of the new stores were restricted ''to the trade,'' but other merchants were willing to sell directly to the public and accept credit cards, practices that have only gradually been adopted by design center tenants, who still refer to the people who ultimately pay for their products as ''end users'' rather than customers.

To drum up excitement about the Pacific Design Center, Mr. Cohen has sought to broaden its appeal. The Museum of Contemporary Art, which is based in downtown Los Angeles, took over Feldman Gallery, a separate 3,000-square-foot structure at the design center where independently organized exhibitions had been shown. An auditorium has been updated as a screening room.